What is mortgage insurance and how does it work? If you don't know, it could cost you a lot more money in the long run. Here’s what to know before you buy, and why you need to shop around.
Find out if you can afford a house. With the Hardbacon Mortgage Calculator, you can see how much your monthly payment will be, the interest you’ll pay, and much more.
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What is a mortgage calculator?
Do you want to buy a house, but not sure if you can afford it? A mortgage calculator makes it easy to see if you can afford to buy a home without having to get a Ph.D. in calculus. But more importantly, it helps determine if you can afford to live in your house after you buy it.
With the Hardbacon Mortgage Calculator, you can test different scenarios to see how small changes in things like the interest rate, the size of your down payment, or the length of your mortgage will impact your budget and financial security. It also calculates other important costs like home insurance, property tax, and even condo fees.
How to use the Hardbacon Mortgage Calculator
It’s super easy to use our calculator. All you have to do is type the numbers in the right spot, and we do the rest. Don’t worry, we’ve labelled everything for you. Before we get started, you need to have some numbers on hand. The most important numbers you need are:
- The property price of the house you want to buy
- The amount of the down payment you are able to provide
- The amortization period, which is the total length of your mortgage
- The mortgage interest rate. You can use our mortgage comparison tool to compare rates
Once you have all the information you need, you’ll input those numbers on the left side of the calculator. Each field is labelled to take the guesswork out of crunching the numbers. To get started, enter the purchase price of the property where it says “Property Price.” Then, enter your down payment in the “Down Payment Field.” Open the drop-down menu to select down payment by dollar amount or percentage of the property price. Next, enter the total length of your mortgage in years in the “Amortization Period” field.
However, those are not the only things that impact the size of your mortgage payment, or the overall cost of homeownership for that matter. For more accurate results, and to see the true cost of owning a house, you’ll also need to include the following information:
- The annual property tax amount
- The annual cost of home insurance
- The annual cost of your condo fees, if you are purchasing a condo
- Other costs can include anything that may impact your budget after you buy a house, such as general upkeep, an increase in utility bills, or the cost of a longer commute to work, to name a few
Understanding the results of the mortgage calculator
After you have finished adding the numbers to the left side of the Hardbacon Mortgage Calculator, you will find the results on the right side. Here, you will see a breakdown of all the most important costs of homeownership that impact your monthly budget, and the total cost of borrowing:
The Mortgage Amount: After your down payment has been applied, the mortgage amount is the remaining property price financed by the lender, which you must repay. It is your mortgage balance.
Total Interest on Loan: Based on the amortization period and the interest rate you entered, this is the total amount of interest you will pay over the life of your mortgage.
Monthly Payment: Your monthly mortgage payment is based on the size of your mortgage, the amortization period, and the interest rate. It is the amount of money you must pay your lender from your monthly household income.
Total Mortgage Payments: Based on the amortization you entered, this is how much you will end up paying back to your lender over the life of your mortgage.
Property Tax (Monthly): When you enter the annual property tax amount, the calculator breaks it down to show you the monthly cost of your property tax.
Property Tax (Total): Based on the amortization period you entered, this is how much you will end up paying in property tax over the life of your mortgage, assuming your property taxes never increase.
Homeowner Insurance (Monthly): When you enter the annual cost of home insurance, the calculator breaks it down to show you the monthly cost of your home insurance.
Homeowner Insurance (Total): Based on the amortization you entered, this is the total amount you will pay for home insurance over the life of your mortgage, assuming your premiums never increase.
Condo Fee (Monthly): When you enter the annual cost of condo fees, the calculator breaks it down to show the monthly cost of your condo fees.
Condo Fee (Total): Based on the amortization you entered, the calculator estimates the total cost of condo fees over the life of your mortgage, assuming the fees never increase.
Other Costs (Monthly): Based on the information you provided, the calculator shows how much you must budget each month for things like heat, hydro, water, general maintenance, or the cost to commute to work.
Other Costs (Total): Based on the amortization you entered, this is the total amount you will pay over the life of your mortgage for things like heat, hydro, water, general maintenance, or the cost to commute to work, assuming those costs never increase.
Total Monthly Payments: Based on all the information you entered into the calculator, this is how much it will cost you each month to live in your home.
Payment Total: Your payment total is based on the amortization you entered plus all the other information you entered into the calculator. It shows you the total amount of money you will pay to live in your home over the life of your mortgage.
Learn more about the Mortgage Calculator inputs
Buying a house can be especially overwhelming for new homebuyers. There are many variables that impact your mortgage payment and monthly budget that you may not fully understand. Below is a detailed description for each input of the Mortgage Calculator, and where you can find that information.
The property price is the final selling price mutually agreed upon by the seller and the buyer. It is often different from the list price, which is found on the real estate listing, also called the MLS listing. The seller lists the property for a specific price based on the value of similar houses in the area and current market conditions. The buyer makes an offer on the house. The seller either accepts, rejects, or makes a counteroffer. In a heated real estate market, the property price could be higher than the list price if competing buyers try to out-bid each other. In a slow real estate market, or if there are issues with the house, the property price could be lower if the seller accepts an offer from the buyer that is lower than the list price.
You cannot enter a down payment that is less than 5% of the property price into the mortgage calculator. That is because the minimum down payment in Canada is 5% for homes priced under $1 million. Houses that cost more than $1 million require at least 20% down. A down payment is the upfront cost a buyer must pay when purchasing a house. The mortgage loan is used to finance the remaining purchase price not covered by the down payment. When using the mortgage calculator you can enter your down payment as either a dollar amount or a percentage of the property price. Buyers who do not provide a 20% down payment require mortgage default insurance on the loan, usually through the Canadian Mortgage and Housing Corporation (CMHC).
The amortization period is the total amount of time it takes to pay off your mortgage in full. The amortization is based on the term and current interest rate. Therefore, it is only an estimate and will change when you renew your mortgage, as interest rates fluctuate. The maximum amortization period in Canada is 30 years for a conventional mortgage; when a buyer provides at least a 20% down payment or more. The maximum amortization is 25 years for a high-ratio mortgage; when the buyer provides less than 20% down. Therefore, if the down payment you enter into the mortgage calculator is less than 20% of the property price, the amortization period cannot be longer than 25 years.
You can quickly find and compare mortgage interest rates using our mortgage comparison tool. Lenders also post their mortgage interest rates on their website and in-branch. The interest rate is the price you pay to your lender to borrow money. It is calculated as a percentage of your total loan amount and is built into your mortgage payment. Every time you make your mortgage payment, a portion pays down your mortgage balance and a portion goes to your lender. Mortgage interest rates impact the size of your down payment and the total cost of borrowing over the life of your mortgage. In the mortgage calculator, you will enter either a fixed interest rate or a variable interest rate:
- A fixed interest rate stays the same throughout your mortgage term. It does not change until your mortgage comes up for renewal. Fixed interest rates tend to be higher than variable interest rates, but not always.
- A variable interest rate fluctuates with the market. It is usually advertised as the prime rate plus or minus a certain percentage. The prime rate is the interest rate that banks use when lending to each other. As the prime rate fluctuates, so does the amount of interest you pay each month. Variable interest rates tend to be lower than fixed interest rates, but not always.
Property tax is calculated by multiplying the total assessed value of the property by the property tax rate, called the “mill rate.” The mill rate differs from province to province, and from municipality to municipality. For example, these are the average property tax rates in Canada’s 3 largest cities:
- Toronto = 0.5997%
- Montreal = 0.7672%
- Vancouver = 0.2468%
Normally, the annual property tax amount is included in the real estate listing of the property. But if it ‘s not, you can find the annual property tax amount by visiting your city’s website, or by calling city hall. If you like math, you can estimate the annual property tax bill yourself, like this:
(Property Tax Rate / 100) x Property Value = Annual Property Taxes
That means if you were to purchase a $450,000 home in Montreal, your annual property tax bill would be $3,452.40.
(0.7672 / 100) x 450,000 = $3,452.40
Property tax is the second most important payment you make after your mortgage. It is calculated as a percentage of the total assessed value of your property. Therefore, if the value of your home increases over time, so will your property tax.
Home insurance is not a legal requirement in Canada, but mortgage lenders require it as a condition of your mortgage loan. It protects the lender from loss should something happen to the property that would cause significant damage or loss. The average cost of home insurance in Canada is about $1000 a year, or $84 a month. Most lenders require you to have basic coverage that includes, but is not limited to: fire, lightning, smoke damage, falling objects, hail and wind damage, frozen pipes, vandalism, etc. You can get a no-obligation home insurance quote by using an online comparison tool, calling a provider directly, or contacting a broker.
Condo fees can be found in the real estate listing of a condo property, usually in a section called “Condo and Maintenance Information.” You can also get that information from the real estate agent, or by contacting the condo company of the listing you are interested in. Condo fees are a monthly financial commitment you are required to pay. Your monthly condo fees are separate from your mortgage. You pay them to the condo corporation, not your mortgage lender. Condo fees pay for things like the regular maintenance of common areas, renovations, major repairs, and some utilities. Condo fees are non-negotiable and all condo owners must pay them. If you default on your condo fees, the condo association may pursue legal action such as a lawsuit or selling your condo.
Understanding mortgages in Canada
Are you ready to start house hunting? There’s more to buying a house than just crunching the numbers. Before you work with a real estate agent or apply for a mortgage, it’s important to understand the basics so you can make smart money moves. Below is a crash course in Canadian mortgages.
What is a mortgage?
Right now, the average cost of a home in Canada is just under $700,000. Unless you're Elon Musk, you’ll need to borrow money to buy a house. That’s where a mortgage loan comes in. A mortgage is a specific type of loan used to purchase real estate property.
A mortgage loan is secured with the property. That means the lender who financed your mortgage has legal rights to the property until it is paid off. If you default on your mortgage payments your lender can repossess the property and resell it to recuperate their loss, called a foreclosure.
Every mortgage is an interest-bearing loan. That means you don’t just pay back the original amount you borrowed, you also pay interest to your lender. Over the life of your mortgage, you will pay back more than you borrowed because of interest. Interest is the price you pay to use money that doesn’t belong to you; it’s how lenders make a profit.
If you take out a mortgage to buy a property, you are called the “mortgagee” and your lender is called the “mortgagor.” When you become a mortgagee, you are required to make regularly scheduled payments to your mortgagor until your loan is paid off. Your mortgage payment does two things: a portion of it pays down the original amount you borrowed, and a portion of it is interest paid to your lender.
What is equity?
Every time you make your mortgage payment, you own a little more of your property. This is called building equity. The amount of equity you have in your home is determined by the gap between how much you owe on your mortgage balance and the current market value of your home. As you pay down your mortgage balance, and the value of your house increases over time, you build more equity in the property.
The Hardbacon Mortgage Calculator includes an amortization schedule. An amortization schedule is a table that shows how much of your monthly mortgage payment goes to interest and how much pays down the mortgage principal. It is an important tool that helps you track how quickly you are building equity in your property. It also demonstrates how the interest rate and the size of your mortgage payment impact how long it takes to pay off your mortgage.
Types of mortgages
A mortgage is not a one-size-fits-all kind of loan. There are several different kinds of mortgages depending on your needs, financial situation, type of property, and its intended use. Different types of mortgages can be bundled together into one product, like a closed high-ratio mortgage, or an open conventional mortgage. Below are the most common types of mortgages in Canada:
Conventional mortgages are the most common type of mortgage. They are the meat and potatoes of real estate lending and makeup about 64% of the mortgage market. A conventional mortgage means the borrower provided at least a 20% down payment or more. That means the lender did not have to finance more than 80% of the property’s purchase price, so the mortgage did not require any kind of mortgage default insurance.
A high-ratio mortgage means the borrower provided less than a 20% down payment. That means the lender had to finance more than 80% of the property's purchase price. For example, if you were to purchase a $400,000 house, but you could only provide a 10% down payment of $40,000, your lender would need to finance $360,000. That’s 90% of the home’s purchase price. In Canada, the minimum down payment is 5% for homes priced under $1 million. However, any mortgage loan that is financed with less than 20% down is considered high-ratio. High-ratio mortgages are legally required to have mortgage default insurance, often provided by the Canadian Mortgage and Housing Corporation.
A closed mortgage refers to specific terms and restrictions imposed on your loan agreement for a specific period of time. Closed mortgage terms range anywhere from a few months to a few years, but 5-year terms are the most common. If you sell your home or pay off your mortgage within the term, you’ll be charged a pre-payment penalty. There are also restrictions around how much extra money you can put towards your mortgage, and when, in order to pay it down faster. Many closed mortgages in Canada are portable, which means you can sell your property before the term is up, and transfer the balance of your mortgage to the new property without being charged a pre-payment penalty.
An open mortgage does not have any pre-payment restrictions. You can sell the house, pay off the mortgage in full, or pay it down as aggressively as you want without incurring any pre-payment penalties. Interest rates on open mortgages are typically significantly higher, making them fairly unpopular. But you have more freedom to accelerate your payments, pay off your mortgage in full, or sell the property without incurring penalty charges. Open mortgage terms can be as short as 6 months.
Mortgage default insurance
Mortgage default insurance protects your mortgage lender from loss in the event you can no longer make your mortgage payment. It makes it possible for buyers to purchase a home with a smaller down payment than what is typically required. If your down payment is less than 20% of the purchase price, you are legally required to have mortgage default insurance and the amortization period cannot exceed 25 years. The Canadian Mortgage and Housing Corporation (CMHC) is the largest mortgage default insurance provider in Canada. However, there are two other private companies that also provide mortgage default insurance: Sagen and Canada Guaranty. Mortgage default insurance makes the cost of borrowing more expensive.
Types of mortgage interest
When you use a mortgage to buy a house, the lender charges interest. Interest is the price you pay to borrow money. Even a small difference in the interest rate could be the difference between paying or saving tens of thousands of dollars over the life of your mortgage. Your mortgage interest rate will fluctuate over time. That is because you and your lender renegotiate your interest rate every time you renew your mortgage term.
There are a few different ways a lender can charge interest on your mortgage. Understanding the different types of mortgage interest rates is one of the most important parts of becoming a homeowner.
Fixed interest rates tend to be higher than variable interest rates, but they remain the same throughout your mortgage term. That means if you sign a 5-year fixed-rate mortgage, your interest rate will not change during those 5 years. When it comes time to renew your mortgage term, you and the lender will negotiate a new mortgage interest rate for the new term. That rate could be higher or lower depending on market conditions, your credit score, and your unique financial situation.
Variable interest rates tend to be lower than fixed interest rates, but they fluctuate as market conditions change. That means your mortgage payment could change month to month if the interest rate increases or decreases. In the case of variable interest rates, there are a two payment options available.
- Adjustable payments change as the interest rate changes. That makes it hard to predict how much your mortgage payment will be each month. Some months your mortgage payment will be lower if the interest rate decreases. Other months your mortgage payment will be higher if the interest increases.
- Fixed payments remain the same month to month regardless of changes in the interest rate. However, the change in the interest rate changes your mortgage amortization; the total amount of time it takes to pay your entire mortgage loan in full. That’s because when the interest rate increases, less of your mortgage payment goes to the principal balance and more goes towards interest. The opposite is true when interest rates decrease. In that case, more of your payment goes towards the principal balance and less goes towards paying interest.
Hybrid interest, known as a hybrid mortgage, blends fixed rates and variable rates together. Part of your mortgage interest rate is fixed, giving you some protection if interest rates increase. The other part of your rate is variable, giving you some benefit if interest rates decrease. Hybrid mortgages often come with added conditions and restrictions. However, they can help you access the benefit of a low-interest rate climate without risking major fluctuations in your mortgage payments or amortization period.
How are interest rates determined?
Mortgage interest rates are not the same for everyone. Your lender will use a variety of factors to determine how much your mortgage interest rate will be. Things that impact your mortgage interest rate include, but are not limited to:
- The prime interest rate
- Type of mortgage interest (ie. fixed or variable)
- Your credit score
- Your income
- How much debt you have
- Type of employment (ie. if you are self-employed)
- The mortgage term (ie. open or closed)
What is the prime interest rate?
The prime interest rate is a benchmark interest rate financial institutions use to set their own interest rates on the different types of loans they offer, such as lines of credit and variable-rate mortgages. Where does the prime rate come from? It is heavily influenced by the overnight rate set by the Bank of Canada; our central bank responsible for carrying out monetary policy.
The overnight rate is the interest rate financial institutions use when lending and borrowing money amongst themselves. When the overnight rate changes, the prime interest rate usually changes within a few days. Financial institutions use the prime rate as a benchmark when setting the interest rates for mortgages, lines of credit, personal loans, car loans, student loans, etc.
If you have a variable interest rate mortgage, your lender will charge you an interest rate of prime plus or minus a certain amount. The posted rate is the mortgage interest rate that financial institutions advertise to the public. If the prime rate is 1.25% and the lender’s posted rate is 2.25%, the lender may charge you a total mortgage interest rate of 3.5%; prime + the posted rate.
Canada’s big 6 banks often have a discount rate, which is less than the posted rate. That means if the prime rate is 1.25% and the discount rate is 1.5%, your mortgage interest rate could be 2.75%. The discount rate is lower than the posted rate and is sometimes advertised beside the posted rate to make it look like you are getting a great deal. If the discount rate is not posted or advertised, make sure you ask the lender what their discount rate is. Always use the discount rate as a starting point for negotiation. It could literally save you tens of thousands of dollars over the life of your mortgage
Mortgage payment options
It goes without saying if you take out a mortgage loan to buy a house you need to pay it back. However, there are several different ways you can repay your mortgage. Lenders offer different payment frequencies to align with your budget and paydays. Let’s take a look:
This is the most common type of mortgage payment. If you and the lender agreed to a fixed monthly payment in the mortgage documents, you will pay the exact same amount on the same day every month. You’ll make a total of 12 payments in a year.
With semi-monthly payments, you make a mortgage payment twice a month, every month. It is calculated by dividing the full monthly payment in half. Then you would make two half payments on the 1st and the 15th, for example. That means if your full mortgage payment is $1,500, you’ll pay $750 twice a month. Because you are making half-payments twice a month, you will still pay the equivalent of 12 full monthly payments over the course of a year.
Bi-weekly payments are similar to semi-monthly payments. However, instead of making your mortgage payments only twice a month, you make half a mortgage payment every 14 days. There are 26 bi-weekly payments in a year. Your lender will add up the total monthly payments you would have made in a year with a monthly payment, and divide that number by 26 to determine your bi-weekly payment amount. That means if your total monthly payment is $1,500, your lender will multiply that by 12 months in the year, which is $18,000. Then your lender will divide that $18,000 by 26 bi-weekly payments, which is $ $692.31. Your biweekly mortgage payment amount will be $692.31 every 14 days. Over the course of a year, you will pay the equivalent of 12 full monthly payments.
Bi-weekly accelerated payments
Bi-weekly accelerated payments are almost identical to regular bi-weekly payments but with one key difference. They are not calculated to equal the same as 12 regular monthly payments. Instead, your lender simply divides your monthly payment in half, and you make that half payment every 14 days. That means if your regular monthly mortgage payment is $1,500, your lender will divide it in 2, which is $750.00. There are two months in the year when you will make three bi-weekly payments within one calendar month; which is two extra half payments in a year. With accelerated bi-weekly payments, you end up making the equivalent of 13 full monthly mortgage payments in a year instead of 12. Accelerated bi-weekly payments can help pay down your mortgage slightly faster and save some money on interest charges.
Frequently Asked Question
What credit score do I need for a mortgage?
In Canada, the minimum credit score to qualify for a mortgage with a traditional lender is about 650. However, it differs from lender to lender based on your unique financial profile. There are private, alternative lenders who will approve mortgages for those with low or bad credit, but the interest rate will be significantly higher with less favourable terms. Things that impact our credit score are your payment history, balances on credit cards and lines of credit, the age of your credit file, how many times you have applied for credit in the recent past, and the different types of loans you have. If you have bad credit you can still get a mortgage. However, if you want to qualify for the best mortgage interest rates and terms you will need to work on increasing your credit score to at least 700.
What is the difference between amortization and term?
The mortgage amortization is an estimate of the total amount of time it takes to pay off your mortgage in full. It is based on the interest rate and the amount of your monthly payment in your current mortgage term. A mortgage term, on the other hand, is the period of time you are contractually bound to a lender and their mortgage conditions. For example, the most common mortgage term in Canada is 5 years. That means you are committed to that lender, interest rate, payment obligation, and other conditions for 5 year period. The term is simply how long you are stuck with a lender and their rules, not the length of the mortgage itself. The maximum amortization is 30 years for mortgages with a 20% down payment or more, and 25 years for mortgages with less than a 20% down payment.
How is my mortgage interest rate determined?
The posted rate is just a benchmark. Your actual mortgage interest rate is determined by your credit score, unique financial situation, and market conditions. The higher your credit score, the better your mortgage interest rate will be. The amount of debt you have compared to your income will also impact your rate. The lender will also take into account the property price and the size of your down payment. The larger your down payment, the lower your mortgage interest rate will be. Conventional mortgages, where the borrower provided at least a 20% down payment, often get a better rate than high-ratio mortgages with down payments less than 20%. Open mortgages with no pre-payment penalty typically have significantly higher rates than closed mortgages. And fixed interest rates are historically higher than variable interest rates.
How can I pay off my mortgage faster?
Shop around for a lender that will give you the lowest rate on a mortgage that fits your needs. Choose the shortest amortization period you can comfortably afford. Buy less house than you can afford by purchasing at the bottom of your budget. If possible, provide at least a 20% down payment or more. Choose accelerated bi-weekly or weekly payments, if you can. Take full advantage of your pre-payment privileges, such as extra monthly payments or a large lump sum. Just make sure you understand your pre-payment restrictions to avoid an overpayment penalty fee. Keep the same mortgage payment when you renew or ask for a higher payment if you can afford it. Don’t withdraw your equity.
How much of a down payment do I need?
In Canada, the minimum down payment requirement is 5% for houses under $1 million. However, borrowers who put down less than 20% require mortgage default insurance, which is added to your mortgage balance and accumulates interest. Mortgage default insurance makes your mortgage more expensive. Also, your mortgage interest rate is heavily influenced by the size of your down payment. The larger the down payment the better. Try to provide at least 20% to avoid expensive mortgage default insurance. There is no maximum down payment, more is usually better. It will help you secure a better rate, your mortgage balance will be lower, and you will pay your mortgage off faster while saving on interest charges.
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